Everything you need to know about DAOs.

A primer on how DAOs are working to collectively shape the new creative economy.
Published on
28 April 2021
Written by
Foundation Team
Everything you need to know about DAOs.

What if you could build something with a group of like-minded people and, together, invest your resources to support common goals? The good news is that with DAOs, the fundamentals of how you can do that are becoming more fluid, open-ended, and accessible to a broader audience.

As NFTs continue to capture the imagination of creators and collectors, DAOs increasingly represent an important piece of the blockchain-enabled puzzle. Collaboration and creativity go hand in hand, and DAOs unlock the next wave of possibility for artist-led ventures, cooperative gallery models, collaborative investment funds, and so much more. With this in mind, we’re here to share some tips about how they work, what you need to start one, and the potential they can unlock for building a more collaborative future.

What exactly is a DAO?

“DAO” stands for Decentralized Autonomous Organization. Essentially, a DAO is a group of people pursuing a shared goal, using a blockchain to make decisions in a transparent and efficient way. You can think of a DAO like a cooperative group that’s bound together by a set of bylaws, and those bylaws are hard-coded on the blockchain.

The possibilities for what you can do with a DAO are boundless. Much like NFTs, they are a flexible technology. A DAO can be as simple as a group of friends pooling funds to buy things for a road trip, or as sophisticated as a high-profile nonprofit with hundreds of donors, dozens of board members, and millions of dollars on the table.

How does a DAO work?

DAOs enable organizations, collectives, granters, and more to come together over the internet in a seamless way, even if nobody in the DAO has ever met before. DAOs have become a popular way to manage all kinds of processes, assets, and projects, as they offer a radically transparent and efficient way to organize and build together online. 

DAOs are “autonomous'' in that they run the same way software does, and are therefore not dependent on a human in a leadership position to make things happen. For example, if a DAO receives money, the way that money is stored and distributed would be written into the DAO’s smart contract, and handled automatically. They are also autonomous in that they are self-governing and give independent agency to all members of the DAO. Every individual can participate in submitting and voting on proposals for the group, making them a great tool for transparent and efficient collective organization. 

What are some examples of DAOs, and what have they accomplished?

You may have heard about PleasrDAO, the group of collectors who first organized on Twitter to purchase pplpleasr’s NFT celebrating the Uniswap V3 launch. They also collected Edward Snowden’s historic genesis NFT on Foundation because, as they’ve said, it’s important for these NFTs to “belong to the people.” FlamingoDAO and $WHALE are two other significant examples of collector DAOs with $1M+ treasuries.

DAOs don’t necessarily need to focus on investing or art collecting, however. Social communities that form through DAOs are also emerging. Friends With Benefits, or $FWB, is a well-known Discord community of cultural-crypto enthusiasts. In its first iteration, members could purchase $FWB tokens to gain access to the server. Now, prospective members can still purchase $FWB tokens, but the existing community votes to collectively decide who can join next. Community building is one of the more powerful tools that a DAO can enable.

There are also DeFi (decentralized finance) applications of DAOs, such as MakerDAO, Uniswap, and Synthetix. They’re fueling the emergence of a global, digital-first economy, as more participants share in the billions of dollars secured within their smart contracts.

There are many other examples of DAOs—ranging in size from a handful of members to a million members, with treasuries from $0 to $230M—and they each have their own goals and governance structures. To get a sense of the range of DAOs that exist right now, you can explore Snapshot’s directory of Ethereum-based communities.

What are the benefits of participating in a DAO?

DAOs are a crypto-native way to coordinate a group of individuals in the pursuit of a shared goal or vision. Similar to a cooperative business model, contributors are incentivized to invest their time and resources because they each have a stake in the future success of the organization. DAOs are much more efficient than traditional business structures, though, because their decision-making processes are completely transparent and automated. This means there’s less potential for abuse of power, and more room for collaboration, innovation, and experimentation. 

A few benefits of DAOs:

What are some of the legalities around DAOs?

Right now DAOs fall in a legal grey area, as regulation hasn’t caught up with the technology. Generally speaking, forming a DAO is simpler than forming a legally recognized cooperative, business, or fund, because they aren’t currently recognized as legal actors. While this enables them to be more flexible and easy to get off the ground, it also means they’re not regulated, and there’s little to no oversight. 

Things are evolving quickly though. DAOs recently had a big win in Wyoming where they can now be recognized as LLCs. Eventually other states could follow suit, paving the way for DAOs to become widely used by all kinds of businesses and organizations. 

What’s the process for creating a DAO?

Much like minting NFTs, the fundamental process for creating a DAO does require technical know-how. But we can imagine a near-term future that provides the community with an arsenal of tools that will make forming a DAO seamless and intuitive. The more people experiment and form an understanding of how DAOs operate now, the closer we’ll be to seeing a wider array of creative applications start to unfold.

If you want to take a crack at starting your own DAO, you’ll first need to have a wallet ready, and a network of peers to rally around your idea. Then you can work with your network to dream up your collective goals and determine your own set of rules. 

Once you establish an approach for decision-making, you can encode that process into a smart contract (this is where things get technical). We won’t go too far into the details of how this works in this blog post, but some pre-existing DAO-creation platforms include Gnosis Safe, Moloch, Aragon, Colony, and DAOStack

If you want to get fancy, you can also create a token, add liquidity, and supply your treasury. The token will be unique to the DAO, and can be used to manage your DAO’s ecosystem. For example, maybe new members can join by purchasing and investing tokens into the DAO’s treasury—which in turn grants them voting rights, and a level of influence on the new possibilities being put forth by the group.

As the DAO grows, new members can join so that you can all make and vote on proposals collectively. Just remember that a DAO is owned by everyone who’s a part of it, so once you get it going, it won’t be “yours” anymore—it will belong to the collective.

How will DAOs shape the future of the internet? 

DAOs transform the traditional model of a centralized business or organization, and reclaim ownership of what’s created by putting power in the hands of the community that built it. 

Unlike centralized business models, all the decisions made by a DAO are decided by the community based on what will best serve the group’s needs and desires. Imagine if any of the tech giants of Web 2—like Facebook or Twitter, for example—were DAOs. How would that change the way that the platforms and their underlying technology were developed? DAOs are setting the stage for new models of community ownership and governance to emerge, which will enable the internet of the future to be more democratic, community-oriented, and participatory.    

What’s next? 

DAOs are growing in popularity and becoming applicable to more use cases every day. The explosion of NFTs across the internet has fueled interest in DAOs, and moving forward, we’ll likely see lots of people experimenting with how they can pool funds to make investments in the space.

We’ll also start to see more organizations (such as nonprofits, startups, and beyond) forming as DAOs, and more self-actualizing groups implementing DAOs to help govern new and exciting solutions for how we create value and think about ownership. This is just the beginning, and Foundation is making moves to open more possibilities for DAOs to seamlessly buy, create, engage with, or share NFTs collectively.

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